Would you use collateral for a loan?

[NashvilleTN]

Is there any bad things that go along with offering collateral for a loan... other than they will take all of your stuff if you do not pay them back? The rep for the financial institution that I am talking to is making it sound unappealing and did not even want to offer it. I do not plan on not making payments and if I am unable to I would pretty much expect to be ruined anyway so whats the difference if they take all of my stuff? Would you do it?

My chipper is worth maybe $25,000. Has blown engine which will cost $15,000 plus a potential additional $6,000 if the core is bad which we will not know until they send it back. I can afford to pay this but do not feel it is wise considering the value of the chipper. I also can afford to to buy a used chipper for $10-20k but I do not feel that is wise either because what if its engine blows?

Any experiences, advice or guidance appreciated

 

[evo]

Is there any bad things that go along with offering collateral for a loan... other than they will take all of your stuff if you do not pay them back? The rep for the financial institution that I am talking to is making it sound unappealing and did not even want to offer it. I do not plan on not making payments and if I am unable to I would pretty much expect to be ruined anyway so whats the difference if they take all of my stuff? Would you do it?

My chipper is worth maybe $25,000. Has blown engine which will cost $15,000 plus a potential additional $6,000 if the core is bad which we will not know until they send it back. I can afford to pay this but do not feel it is wise considering the value of the chipper. I also can afford to to buy a used chipper for $10-20k but I do not feel that is wise either because what if its engine blows?

Any experiences, advice or guidance appreciated

Well it would depend on what I’m using for collateral, amount of the loan, and how easy it would be to pay back.
I’d offer up my 11 year old for collateral if I knew I’d be able to pay the loan back easy (if I had the money locked up somewhere but didn’t want to tap into it).. If I were going beyond my comfort level I’d make damn sure that I didn’t pony up anything i could do without.. but I also wouldn’t expect the best interest rate either

 

[NashvilleTN]

Well it would depend on what I’m using for collateral, amount of the loan, and how easy it would be to pay back.
I’d offer up my 11 year old for collateral if I knew I’d be able to pay the loan back easy (if I had the money locked up somewhere but didn’t want to tap into it).. If I were going beyond my comfort level I’d make damn sure that I didn’t pony up anything i could do without.. but I also wouldn’t expect the best interest rate either

Thank you for your reply. They said interest rate would still be within their standard which is up to 9% which I guess is not the best but also not the worst. I do not have the all the money and it is just tied up in something else but I am also paying myself enough to live this year for the first time and do not expect it to be a problem. If I could not afford a payment I could obviously pay myself less or even nothing for a few months. Another thing is, there are alternative options such as fixing my chipper or just buying a used one cash, but this is my first loan and there is an additional value in getting one of those under my belt. I feel like it is huge but my accountant and bookkeeper don't really seem to think so. Chipper is $48,500 I am going to put at least $10,000 down

 

[southsoundtree]

Have you considered business-continuity (maybe a different name) insurance and disability insurance?

IF you get hurt, you're covered with disability insurance.
IF you're hurt, the BC insurance covers the amount you set up, such as enough to pay payments and insurance, while not generating revenue.

How much depends on one person? That's my story at the moment. I can't afford to get hurt. I would have to change my structure to have someone else for sales, felling, pruning, and climbing. Ground workers are the easiest to replace.

 

[Chaplain242]

A lot of those insurances around here are junk so be careful and read what is covered, when, for how long, and calculate the cost. Sometimes better to have an emergency fund to cover those types of eventualities if you can muster it...

 

[NashvilleTN]

A lot of those insurances around here are junk so be careful and read what is covered, when, for how long, and calculate the cost. Sometimes better to have an emergency fund to cover those types of eventualities if you can muster it...

Have you considered business-continuity (maybe a different name) insurance and disability insurance?

IF you get hurt, you're covered with disability insurance.
IF you're hurt, the BC insurance covers the amount you set up, such as enough to pay payments and insurance, while not generating revenue.

How much depends on one person? That's my story at the moment. I can't afford to get hurt. I would have to change my structure to have someone else for sales, felling, pruning, and climbing. Ground workers are the easiest to replace.

Yeah that is the one thing I am worried about... I feel the emergency fund would be the best. If I got hurt I am the only climber. I only have ground workers working for me. Even if I could get the insurance that would cover the cost of the chipper what would my ground guys be doing? I feel like I would have to replace me in that situation regardless probably hiring contract climbers for the time I was hurt. Other than that I have a back up plan for everything else:
-Chipper truck goes down, we can chip into the bucket truck.
-F350 and dump trailer goes down, we can load logs into the chip truck.
-Bucket truck goes down, we can climb
-Chipper goes down, it will be under warranty and they will give me a rental
-Stump grinder goes down, I can rent one or reschedule my stumps
-Dingo goes down, I can rent one or... we can... I guess... move stuff manually.....

It might sound kinda messed up but I feel having a loan with that type of consequence would inspire me to bust my ass even more than I already do. I just can’t see me failing. No matter what happens I will figure something out because I feel like I have to!

 

[Chaplain242]

Sometimes good to have a reserve supervisor ready and in case too to manage quality control and $$$ even if others in charge of technicalities of job.

Can be relative, spouse, or retired friend etc that you get to spectate or supervise on jobs now and then to keep current, so if you are injured you don’t need to have your head in the game so much.

 

[evo]

Thank you for your reply. They said interest rate would still be within their standard which is up to 9% which I guess is not the best but also not the worst. I do not have the all the money and it is just tied up in something else but I am also paying myself enough to live this year for the first time and do not expect it to be a problem. If I could not afford a payment I could obviously pay myself less or even nothing for a few months. Another thing is, there are alternative options such as fixing my chipper or just buying a used one cash, but this is my first loan and there is an additional value in getting one of those under my belt. I feel like it is huge but my accountant and bookkeeper don't really seem to think so. Chipper is $48,500 I am going to put at least $10,000 down

9% on 38,500 is going to suck. Shop around and you might do much better. Often times with equipment there is no collateral because the sharks just take the equipment.
I’d try to whittle down the interest rate to somewhere near 5% and draw the loan out over the longest duration as possible to keep the monthly low.
Then you can pay the principal down hard in the first year with double payments.
I’d also look at 0 down the. Use that 10k to pay that principal down.

This does a few different things, you pay less in interest, the lower payments might help durning slow times or injuries, keep more cash liquidity. Remember who ever is writing you the loan isn’t doing you a favor, you’re paying them for their liquid cash..

 

[Gorman]

There is absolutely no way he can expect 5 percent on a loan in his situation. 9 percent sounds about right. You might get lucky for around 8.25 but 5 is unrealistic. The longer that chipper is down the longer you lose in making money in the spring season so I suggest you take the 9 percent and get serious about making the most of this season.

 

[evo]

W

There is absolutely no way he can expect 5 percent on a loan in his situation. 9 percent sounds about right. You might get lucky for around 8.25 but 5 is unrealistic. The longer that chipper is down the longer you lose in making money in the spring season so I suggest you take the 9 percent and get serious about making the most of this season.

wait are we talking about a unsecured cash loan or a new equipment loan?

 

[Gorman]

W

wait are we talking about a unsecured cash loan or a new equipment loan?

New equipment loans are going around 6.5 now so an unsecured is going to be more. Not dogging you, i just think if this fellow doesn’t have the cash to pay for a new engine he isn’t going to command a really low rate. If I were him I’d focus on getting that chipper running or getting another.

 

[Chaplain242]

New equipment loans are going around 6.5 now so an unsecured is going to be more. Not dogging you, i just think if this fellow doesn’t have the cash to pay for a new engine he isn’t going to command a really low rate. If I were him I’d focus on getting that chipper running or getting another.

Round here people are now getting scrutinised for loans. Heard two cases recently.

One had withdrawn cash at a casino for multiple weekends in a row and was refused a loan with 66% deposit because was determined a gambling risk.

Another was refused a loan because ordered Uber eats multiple times a week and was determined to live too extravagantly...

 

[NashvilleTN]

There is absolutely no way he can expect 5 percent on a loan in his situation. 9 percent sounds about right. You might get lucky for around 8.25 but 5 is unrealistic. The longer that chipper is down the longer you lose in making money in the spring season so I suggest you take the 9 percent and get serious about making the most of this season.

For a new engine it will be $15-$21k. For a 2008 bandit 250xp. My bank account has more than that in it but is it wise to spend almost all my money on this? Dealer will give me $5k for my chipper as it sits.

 

[Gorman]

Is that for a diesel option? I wonder why they can’t throw a gasser in there? I don’t want to derail, but how did your old 4045 self destruct? How many hours did it have on it?
If your chipper has a bunch of hours, maybe think about a bigger new one. I would opt for a 15” 20k is a lot to spend on a chipper running again and you might be able to get a new 15” in shorter time.

 

[Gorman]

Plus, you’ll command a much lower interest rate on a new chipper.

 

[NashvilleTN]

Is that for a diesel option? I wonder why they can’t throw a gasser in there? I don’t want to derail, but how did your old 4045 self destruct? How many hours did it have on it?
If your chipper has a bunch of hours, maybe think about a bigger new one. I would opt for a 15” 20k is a lot to spend on a chipper running again and you might be able to get a new 15” in shorter time.

Would that be cheaper to put a gas engine in there? It seems like super custom work and redoing everythinggg on the chipper. Even though the engine is much cheaper don’t you think the whole project would end up being about the same? So I think the engine is a 3054c 130hp Perkins/Caterpillar 2500 hrs. They said whatever bolts hold in the crank shaft or crank shaft cover were replaced with the wrong bolts and they did not fit right or something so they snapped and tore up the crank shaft. 8-9k to replace the crank shaft. I am NOT spending that much money on that unless they can definitevly tell me that’s 100% all that is wrong which they can’t promise

 

[John@TreeXP]

I have some background in banking and I'm not a lawyer, so please take everything I say with a grain of salt. Deciding to go with a secured or unsecured loan based on your income/debt ratio and credit score, I always recommend unsecured. With regard to loan costs, fixed or variable interest rates, term length and payment amount, it's all negotiable. Institutional lenders are one of many competitors who want your business. Shop around. Being on the receiving end representing lenders, consumers have a lot more control over their decision making processes than they usually realize. Real property like a home or land is easier to leverage with a 1st or 2nd deed of trust. In the event of a default, a lender typically cannot go after more than the foreclosed value of a residential property, unless there's a personal guarantor, but this isn't usually the case with personal property collateral, like vehicles and/or machinery. Bankruptcy laws favor the consumer, much to the detriment of lenders, except when it comes to student loans.

 

[John@TreeXP]

You might also look into leasing brand new equipment, every few years, while enjoying factory warranties. Really depends on your cash flow, credit worthiness and willingness to incur the cost of borrowing.

 

[JE Chop Nash]

I’d go with a new gas 18xp. You will grow into it and around nashville we’ve found chips are cheaper to offload than log. A chipper is a good place to get the most reliable and sizable piece of kit that fits your cash flow...most other stuff is readily replaceable but it’s tough to find a well maintained chipper used much less in a hurry if your one and only breaks down. Re the collateral... likely a must in your situation but run that loan for 9-12 months of on time payments and then renegotiate it.